Sanctions bolstering Russian IT sector, IBS CEO says

MOSCOW (Reuters) - Russian customers have stepped up purchases of Russian-made software due to the weaker rouble and the risk that contracts with foreign suppliers could be affected by Western sanctions, the head of Russian IT services company IBS told Reuters.

REFILE - CORRECTING COMPANY NAME Svetlana Balanova, Chief Executive of Russian IT services company IBS, poses for a picture at the headquarters of the company in Moscow, Russia January 25, 2018. REUTERS/Maxim Shemetov

Demand for software is also rising as economic recovery leads Russian companies to once again invest in technology, Svetlana Balanova, IBS chief executive, said.

“Some customers who would consider (Germany’s) SAP before, are now considering Russian IT systems - either 1C or Galaktika,” she said in an interview.

Some are deterred by the cost of acquiring software from foreign suppliers after a sharp drop in the rouble. Others, mostly state customers, fear fallout from sanctions.

“Some sanctions have already been imposed and there could be more, and for many clients getting rid of sanctions risks is a clear business decision,” Balanova said.

SAP (SAPG.DE), Europe’s biggest technology company, has not lost any Russian clients because of sanctions risks, Natalia Parmenova, SAP’s executive director in Russia and CIS, said in an emailed comment in response to an enquiry from Reuters.

SAP competed with Russian software producers only in niche products while SAP’s portfolio was much broader, she said.

Balanova said IBS, whose customers include state energy majors Gazprom (GAZP.MM) and Rosneft (ROSN.MM), was experiencing double-digit sales growth, but she gave no figures.

In 2016, according to market research firm IDC, IBS was among the market leaders in Russia in IT services revenue growth, posting a rise of around 30 percent in dollar terms.

While Western software companies have not themselves been targeted by sanctions, new sanctions restrict U.S. software companies’ ability to extend credit to Russian financial or energy companies on a U.S. sanctions list.

REFILE - CORRECTING COMPANY NAME The logo of Russian IT services company IBS is on display at the headquarters of the company in Moscow, Russia January 25, 2018. REUTERS/Maxim Shemetov

RESTRICTIONS

Two of Microsoft’s official distributors in Russia have imposed restrictions on sales of Microsoft (MSFT.O) software to more than 200 Russian companies following new U.S. sanctions.

U.S. software company Oracle Corp (ORCL.N) has warned Russian oil companies that new deals, that are not in compliance with expanded U.S. sanctions, could not be signed, Russian daily Kommersant reported on Thursday.

Other Western software suppliers could potentially be affected by U.S. sanctions if they do business in the United States and Russian businesses fear the EU could take similar measures.

In an environment where many businesses seek affordable alternatives to foreign software, IBS has made product development a priority.

“We are currently seeing a very big demand for IT,” Balanova said, adding the government’s drive to digitalize state services has become a major new driver for the market.

Sources said in December that IBS, whose former parent company, IBS Group, dropped a Frankfurt listing in 2014 after spinning off its Luxoft (LXFT.N) unit, was again considering floating shares in 2018.

Balanova said IBS, whose main shareholder is Russian veteran tech entrepreneur Anatoly Karachinskiy, was considering fundraising, but declined to elaborate.

“We grow ahead of the market and it’s the right moment to accelerate our growth even further,” Balanova said.

Over the past few years, IBS has transformed itself from a systems integrator into a company providing services from application consulting, customization and maintenance to design of IT infrastructure and product development.

Balanova said IBS has ramped up hiring while keeping its focus on the Russian market. IBS, which compares itself with bigger rivals including Atos (ATOS.PA) and Capgemini (CAPP.PA), said separately its headcount rose by almost a third in 2017 to 3,100 people.

(This version of the story corrects company name in headline and lead and clarifies that IBS’s former parent company IBS Group, not IBS, had Frankfurt share listing, in paragraph 17.)